Current GST system works as planned, says its architect

By Callum Liddelow

By Kathryn Bermingham

102.5 ABC Perth

Topic:Tax

Ex‑WA senator Mathias Cormann says the core design of the 2018 GST changes should stay the same. (ABC News: Andrew O'Connor)

In short:

Former WA senator Mathias Cormann says the GST system is working exactly as intended.

His remarks follow a Productivity Commission interim report that suggested the WA GST deal be ended because it is costly and unfair.

Mr Cormann says Australia has one of the world’s most thorough horizontal fiscal equalisation systems and that a proper balance is needed.

One of the creators of the Morrison‑government GST deal, who has watched state leaders argue over their share of the fiscal pie, says the deal works as planned.

Former WA senator Mathias Cormann’s comments add to the criticism from WA leaders toward the Productivity Commission, which on Friday released an interim report calling the 2018 deal a costly mistake and urging its removal.

Premier Roger Cook called the report’s writers “east‑coast clowns” and said he had assurances from Prime Minister Anthony Albanese that the current setup will stay.

South Australian Labor premier Peter Malinauskas called the deal a “dud” for the rest of the country and said it should be scrapped.

Mr Cormann, a WA senator from 2007‑2020, was federal finance minister in the Morrison government that approved the deal.

He said the “unfairness” that Western Australia faced was fixed by his government’s changes.

Those changes added a “relativity floor” that corrected a problem that had let WA be taken advantage of because of its mining industry, he told 102.5 ABC Perth.

“That is why our federal budget is very sensitive to iron‑ore price moves, up or down, because it hugely affects Commonwealth revenue,” he said.

How does GST work?

Source: Australian Taxation Office and Commonwealth Grants Commission.

‘Appropriate balance’

The 2018 GST deal gives WA a larger share of GST revenue each year than it would receive under the national formula.

The original formula was meant to let states provide similar services by giving more money per person to states with higher needs or less money.

It was controversial because GST payments fell at the same time WA’s iron‑ore royalties dropped.

The 2018 changes stayed controversial, as they gave WA rising GST payments while its mining royalties rose with high iron‑ore prices.

Mr Malinauskas said the interim report called the situation a “dud deal for the rest of the country”.

“Premier Cook can call people clowns all he likes but it will not change the verified report that now says it is a dud deal for the rest of the country,” he said.

He warned the federal government would be blamed in South Australia if it did not act.

Mr Cook’s government says changing GST distribution would unfairly punish WA for its success.

Mr Cormann says no other state or territory has been left worse off by the 2018 changes. (ABC News: Andrew O'Connor)

Mr Cormann said he believes GST should support equal services across the country, but that focusing only on that has taken too much from WA.

No state worse off

The Commission’s provisional report on the 2018 reforms is part of a review required by the law that introduced those changes.

According to the Commission, every state and territory except WA meets 98 % of its spending with GST returns, compared with WA’s 113 %. For the others, the “no‑worse‑off guarantee” adds the remaining two percent.

Mr Cormann served as finance minister in the Morrison government. (ABC News: Nick Haggarty)

Mr Cormann said other states and territories were fairly treated in the GST deal through this guarantee.

“No other state or territory has been left worse off because of those reforms,” he said.

The Productivity Commission will release its final report in December, and Prime Minister Albanese said he will decide then.

Mr Cormann said the debate will help “inform the best possible final report”, but he still supports the structural changes to the GST model.

“You can always tweak things at the margins, but the core architecture of the reform should stay.”

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